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Axis Bank misses Q3 estimates, asset quality remains elevated

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Axis Bank Ltd on Wednesday reported a 4.5% increase in net profit year-on-year to Rs1,680.85 crore on the back of higher net interest income. Net profit was, however, lower than the 2,073.4 crore estimated by 22 analysts polled by Bloomberg on account of higher operating expenses and provisions.

Asset quality worsened in the second quarter with the bank adding fresh bad loans worth 6200 crore including 1090 crore from their bond investment in a housing finance company.

Gross non-performing assets (NPAs), as a percentage of total advances, stood at 5% in the December quarter compared with 5.03% in the September quarter and 5.75% in the year-ago December quarter.

Post provisions, net NPA ratio was at 2.09% against 1.99% in July-September and 2.36% in the year-ago quarter. The bank’s stock of stressed accounts under watch, which includes the BB rated accounts, reduced by 18% quarter on quarter to 5130 crore (ie 0.9% of the customer assets). This included downgrade of their non-funded exposure towards Vodafone India Ltd and Karvy Stock Broking. Jairam Sridharan, chief financial officer of Axis bank, said in a post results call that the bank is closing watching the corporate bond portfolio for further slippages in the next quarter, even as it continues to reduce the portfolio.

“The stock of stressed accounts should remain in the same zone. Overall slippage rate should get normalized from the current levels of 2.5% which is expected to take a few more quarters if the BB & below corporate loan book remains at normalized,” he said.

Provisions during the quarter increased 13.6% to 3470.92 crore as against 3054.51 crore in the year-ago quarter. In the July-September quarter, the bank had set aside 3518.39 crore in provisions. The bank’s provision coverage for the second quarter stood at 78%. The management said that it sees scope to increase PCR to the earlier high of 82% over a period of time.

Operationally, the bank’s net interest income, or the difference between interest earned on loans and that paid on deposits, rose 15.16% to 6452.98 crore from 5603.67 crore in the corresponding period last year. Loan book grew 16% year on year to 5.50 lakh crore mainly led by retail loan book which included growth in unsecured portfolio, auto and small business banking. Other income, which includes core fee income, fell 5.35% on year to 3786.57 crore in the three months ended December.

Shares of the lender lost 1.08% to close at 710 apiece, while the benchmark Sensex lost 0.5% to close at 41115.38 points on Wednesday.

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